To continue reading, subscribe now.

Already have an account or want to create one to read two commentaries for free?
Log in

Support High-Quality Commentary

For more than 25 years, Project Syndicate has been guided by a simple credo: All people deserve access to a broad range of views by the world's foremost leaders and thinkers on the issues, events, and forces shaping their lives. At a time of unprecedented uncertainty, that mission is more important than ever – and we remain committed to fulfilling it.

But there is no doubt that we, like so many other media organizations nowadays, are under growing strain. If you are in a position to support us, please subscribe now.

As a subscriber, you will enjoy unlimited access to our On Point suite of long reads and book reviews, Say More contributor interviews, The Year Ahead magazine, the full PS archive, and much more. You will also directly support our mission of delivering the highest-quality commentary on the world's most pressing issues to as wide an audience as possible.

By helping us to build a truly open world of ideas, every PS subscriber makes a real difference. Thank you.

I don't say that it is a fact, but I think that patents might be used to create more harm, than good. We can easily imagine a pharmaceutical company developing a new virus in parallel to the new medicine. Spreading the first and patenting the second, the company will generate a significant money flow. As far as I can remember, every year there is a new strain of Influenza... as if the world is SUBSCRIBED to it... And a new vaccine as well!

The argument is based on pharmaceuticals, an issue that affects the Us, as well as so-called LDCs. I use this older term, because all economies - except a few like Venezuela - are "developing." But what about all the intellectual property that perhaps is less vital to the recipients, but vital to the well-being of the producers, e.g., entertainment? What about the widespread theft of intellectual property by our Chinese "partners" in the global economy?

People who devote their lives to research and invention, who risk their capital, human and tangible, to create new products and processes should be adequately compensated. If Stiglitz's real problem is with the current patent system, provide realistic alternatives, but don't create further dependency societies that rely on the richer countries to make gifts of their endeavors.

Why emphasize these reforms for developing countries? We need to reform the IP system within developed countries perhaps even more urgently. It is a likely driver of accelerating inequality, and potent fuel for lobbying and rent-seeking. We need to roll back all the expansions of IP: we need to reduce the durations of copyrights to 50 years; shrink the scope of patent protections and make any kind of renewal much more difficult; we need to stop multinational corporations from arbitrarily assigning their trademarks to their favorite offshore tax havens. We need to start pushing this here in the U.S. and in other OECD member countries.

In my ebook "The Global Race" by Robert P Bruce I recommended two changes that are relevant to establishing a fairer Global system of IP :

1) Stop issuing long term patents for what are mostly logical advances in design development. France and Germany operate a "utility" protection for new designs which goes through a much faster process than full patent applications and gives protection for just 10 years. This should be expanded internationally to cover many innovations that are currently granted as full patents, with the protection period reduced to just 5 years.

2) Reserve patent protection only for true major advances in human technology, but also reduce the protection period from 20 years to 10 years, to accelerate the spread of new innovations.

These reductions in protection reflect two factors.

First the sheer pace of technology now makes this appropriate. The ipod was invented in 2000, but was already replaced by mobile phones and streaming services by 2015. Even the iphone itself was only launched in 2007, but already Facebook forsees the replacement of smartphones by new personal "ipals" that enable augmented reality and connect users to networked services.

Secondly, the time taken to get a payback on investment in R&D is reducing rapidly as the size of the Global consumer market grows. When the patent limit was set at 20 years by the WTO in the 1990s the total number of Global consumers with real purchasing power was barely 1 billion. Today the Global middle class has already doubled to 2 billion and will now rapidly grow to 5 billion by 2050.

This will result in vastly higher returns on investment for the winners in The Global Race. But these elite Global corporations must not overplay their hand. In any competitive market if profit margins are pushed too high the inevitable result is simply to draw in more competitors and substitutions into the market. Global corporations would do better to make their profit expectations more realistic so that they can continue to build on their own technological advances for the long term without attracting more competition.

The existing approach can be tweaked heavily into working. A few things are broken and suborn abuse: software patents related to processes should not be patentable and the basic guiding principal needs to be enforced ('if anyone involved in the art could develop the article, it's not unique enough to patent' - e.g. "home button" has been used for years on multiple computer platforms, but a home button on an iphone was patented and preposterously considered to be worth billions).

But the biggest fix would be to require inventors declare (and prove) how much money was invested in creating their patentable article. Presumably, the inventor will declare the investment on tax returns, so fraud should be reasonably detectable. The award for their patent would be to recoup that investment plus some "bonus" amount (200% of the investment? 400%?) over a limited period of time. Revenue, profit, and cost information must be reported quarterly. Once the investment and bonus is recouped (or the clock runs out), the patent expires. This provides incentives for reasonable investments while eliminating the, "kill them all!" incentive to milk every dollar possible for the already protracted patent protection period.

Which is more productive? Defense contractors paid on a cost-plus basis (your model) or the pharma/biotech industry?

In your model, will companies that lose money on a drug investigation get the cost-plus bonus? Or will companies that "earn" their bonus, but no more, get the same payoff as companies that create drugs that pay for themselves a thousand-fold? Will companies that have a lot of losers investigations get reimbursed for their investments? How? Will they be allowed to bundle together all their winners and losers? Will that result in successful companies acquiring companies with lots of losers -- for tax reasons, not economic ones?

Which is more productive? Defense contractors paid on a cost-plus basis (your model) or the pharma/biotech industry?

In your model, will companies that lose money on a drug investigation get the cost-plus bonus? Or will companies that "earn" their bonus, but no more, get the same payoff as companies that create drugs that pay for themselves a thousand-fold? Will companies that have a lot of losers investigations get reimbursed for their investments? How? Will they be allowed to bundle together all their winners and losers? Will that result in successful companies acquiring companies with lots of losers -- for tax reasons, not economic ones?

Which is more productive? Defense contractors paid on a cost-plus basis (your model) or the pharma/biotech industry?

In your model, will companies that lose money on a drug investigation get the cost-plus bonus? Or will companies that "earn" their bonus, but no more, get the same payoff as companies that create drugs that pay for themselves a thousand-fold? Will companies that have a lot of losers investigations get reimbursed for their investments? How? Will they be allowed to bundle together all their winners and losers? Will that result in successful companies acquiring companies with lots of losers -- for tax reasons, not economic ones?

Using prizes to replace patents is a good idea. But the way many proposed to award prizes for innovations is impractical in the real world. They, including Dr. Stiglitz, proposed awarding “cash prizes,” which are paid once and for all when innovations arrive. Yet, an innovation that appears valuable today could turn out worthless, or not as significant, in the future. Thus, the probability of wrongly rewarding innovators with cash prizes is not small at all in the dynamic real world. Further, it is extremely difficult to determine the value of a newly coming innovation. To remedy the cash-prize problem, I proposed to replace patents with “state-dependent prizes” in a recent publication titled “The switch from patents to state-dependent prizes for technological innovation.” https://doi.org/10.1016/j.jmacro.2016.09.007

In the case of pharmaceuticals, who wil spend the billions to research and develop new drugs, and absorb the costs of failure? In the case of HIV drugs, perhaps the U.N. countries should have got together and bought out the patents and distributed the drugs for free.

Rich countries have a tendency to regard their scientific and technological achievements as being due to their own efforts. They tend to see themselves as harder-working, better organized, and smarter than other countries, and to think that this is why they are rich. They also tend to think that is why they make many discoveries.

That is not the way the world works. Rich countries are rich only because they are lucky. Manufacturing and many other activities tend to cluster together. Rich countries are rich because they happened to form such clusters early on. Poor countries are just the ones that got left out when the clusters formed.

Having clusters of manufacturing allows countries to pay for research and otherwise creates a good environment for research. That's why rich countries make many discoveries.

But we need to work towards eliminating this huge unfairness in our world economic system. Spreading the benefits of research around is one way to do that. We need to think about better ways to incentivize research than granting companies monopolies for an absurdly long time.

Big Parma should be socialized. Imagine free prescription drugs for all. The cost of health care and health insurance would shrink, all people would have at least some basic care and nurse practitioners could provide affordable monitoring of prescription renewals - freeing doctors for more complex tasks.It is foolish to think that patents are the best or only way of developing new drugs. At least allow automatic damages for infringement, including derivative works, that better reflect and apportion the cost of production rather than litigate profits of the infringer. Medication is a matter of life and death.

By the same logic, we should have free food, as it is a matter of life and death. And free housing, and free education, and.... But, that is not the right approach. Many governments all over the world are negotiating with pharma companies and setting reasonable prices. Governments should be subsidizing some of the medicines too. After all, you don't want to kill the golden goose that has contributed so much to the welfare of society through many innovations such as PET scan, MRI..., and all the drugs from penicillin to HEP C drugs and the new ones to come.

I can't find anything here that Joe Stiglitz hasn't said before. There is the familiar populist rabble rousing in the place of analysis. And there is the usual trashing of "corporate profits" to get us salivating instead of thinking.

The truth that Stiglitz et al. dare not speak is that today's profits are tomorrow's new drugs. Pharmaceutical profits are what mobilize the animal spirits of investors and entrepreneurs to discover new drugs. Yes, it is an expensive business, but the social returns are staggeringly high. The social returns, say, from HCV drugs dwarf the puny private returns to drug companies. Do the math!

Where is the evidence that Stiglitz's pet proposals for financing drug research will be less costly than the present system? I hope there is something substantive in the underlying study, because you won't find it here. There is every reason to think their reforms will cost the same or more and will stifle the incentives for drug research in red tape, bureaucratic delay and crony socialism.

Why do Stiglitz et al. think the lion's share of new blockbuster drugs have originated in the labs of US-based drug companies? You can't beat something with nothing. Before we "socialize" pharmaceutical R&D, let's demand proof that Stiglitz et al.'s proposed reforms won't cost the lives of more kids than they save.

Nor do I believe their pose as champions of developing countries. Where would South Africa be today if HIV/AIDS drugs had not been developed in the first place? Or Egypt and India without HCV drugs? Look, the brute fact is that Third World governments can't promise to expand access to medicines that don't exist. The health and well-being of the sick -- and those who will become sick -- around the world depend on the vitality of pharma and biotech companies. I don't see how trashing them helps the sick anywhere. Pardon my mixed metaphor: It just kills the chicken that lays the magic bullet.

New Comment

It appears that you have not yet updated your first and last name. If you would like to update your name, please do so here.

Pin comment to this paragraph

After posting your comment, you’ll have a ten-minute window to make any edits. Please note that we moderate comments to ensure the conversation remains topically relevant. We appreciate well-informed comments and welcome your criticism and insight. Please be civil and avoid name-calling and ad hominem remarks.

Mass protests over racial injustice, the COVID-19 pandemic, and a sharp economic downturn have plunged the United States into its deepest crisis in decades. Will the public embrace radical, systemic reforms, or will the specter of civil disorder provoke a conservative backlash?

For democratic countries like the United States, the COVID-19 crisis has opened up four possible political and socioeconomic trajectories. But only one path forward leads to a destination that most people would want to reach.

Log in/Register

Please log in or register to continue. Registration is free and requires only your email address.

Emailrequired

PasswordrequiredRemember me?

Please enter your email address and click on the reset-password button. If your email exists in our system, we'll send you an email with a link to reset your password. Please note that the link will expire twenty-four hours after the email is sent. If you can't find this email, please check your spam folder.